5 Liabilities to Separate Before Negotiating
Business Debt Relief

The name printed on the monthly statement resolves nothing about who must pay. Until the agreements, guarantees, filings, and tax notices have been read as one file, any proposal describes a debt that may belong to someone else.

1. Persons and Entities Named as Obligors

An owner who volunteers to settle the company balance can learn that one signature committed two debtors rather than one. Begin with the signature pages and the definitions that fix each term, then trace every amendment. A nickname in the accounting software carries no authority over the question of who owes what.

Simply create separate entries for the company claim and any asserted personal obligation. Company and personal amounts may share a transaction, but the releases that resolve them are distinct instruments with distinct parties. Begin with the schedule, then draft the offer. Protect and preserve the executed versions with the payment evidence.

The drawer holds the original schedule with its eleven pages, most of them devoted to definitions.

2. Guarantees Signed by Owners and Affiliates

A guarantee stands beside the company debt as an obligation of its own. Read the guaranteed amount, the events that fix liability, and the language that keeps the promise alive after partial payment. Steps an owner takes, or does not take, before signing determine whether that promise covers one advance or every future balance under the same program.

The continuing guarantee (which the signer recalls as a formality required in order to release the funds, though the page tells a different account) deserves the same attention as the funding agreement itself.

He signed where the tabs indicated and asked about the terms only when the withdrawals continued after the balance should have closed.

Review and analyze the wording with counsel before treating any payment as progress toward release. A payment that reduces the company balance may leave the guarantee untouched where the instrument so provides. Any communication with the funder, even casually, can alter the posture of the case before counsel has assessed it.

Whether the signer understood this outcome at the funding table is a question the file leaves open.

3. Collateral and Proceeds Under UCC Section 9-315

Often we see equipment listed as unencumbered funds in a proposal whose security agreement says otherwise. A New York statute, UCC section 9-315, generally provides that a security interest continues in collateral after disposition unless the secured party authorized the disposition free of the interest, and it can attach to identifiable proceeds. Counsel must determine the governing law and the actual interest at stake before any sale is promised.

A filing in the public record, in most of the files we have seen though the sample is not scientific, establishes less than owners assume. This is why counsel reads the filing before blessing the sale.

Before promising proceeds from a sale, before treating equipment as freely available settlement money, before assuming that payment of one balance clears every filing that names the company, obtain advice about the transaction and the filings that encumber it, because an extremely convenient funding source can create a second dispute where the first one stood.

4. Employment Tax and Canceled Debt Consequences

Tax debts leave less room for confusion than commercial debts do. Most MCA balances are disputed figures on a schedule. A payroll liability is a fixed obligation to the government, and collectors of that obligation do not bargain the way lending parties do.

The IRS guidance on business tax debts describes installment agreements and qualifying offers in compromise rather than automatic discounts, and employment tax enforcement can include the trust fund recovery penalty with levies against responsible persons. Responsibility under that penalty turns on authority over financial affairs and willful failure rather than title alone, so paying MCA creditors while payroll taxes sit unpaid can deepen the exposure that matters most.

The IRS guidance on canceled debt explains that canceled amounts can be taxable income, with exceptions and exclusions subject to requirements that demand action from the owner. A forgiven balance has a peculiar afterlife. It can return as income in the year the creditor writes it off.

The statute is not entirely clear on every boundary here, which is part of the problem. The tax file stays open after the commercial file closes.

5. Balances Whose Legal Character Remains Open

Some balances arrive labeled as purchases and behave as loans, and the distinction controls which defenses are available. New York courts examine substance rather than labels, weighing reconciliation practice, the finiteness of the term, and recourse in bankruptcy, though the presence of a reconciliation clause alone decides nothing about enforceability.

In LG Funding, LLC v. United Senior Properties of Olathe, LLC, a New York appellate court applied that substance test to an MCA agreement rather than accepting the contract label. Three daily withdrawals preceded the first letter from counsel in a file closed last spring, which is why the label on the first page earns no deference.

The character question belongs before the negotiation, not inside it.

Ask the reviewer to ensure the proposal names every obligor the file reveals and separates service fees from creditor payments. We should ensure litigation and disputed guarantees receive a written assignment to counsel rather than an assumption. Test an extremely optimistic estimate against the cash forecast before it influences a payment decision.

Delancey Street offers an MCA focused debt settlement review beginning with a free confidential initial conversation. The business is a settlement company rather than a law firm, and it describes coordination with independently licensed counsel for legal matters. Eligibility, fees, and the handling of litigation or disputed guarantees should be confirmed for the specific accounts. Most owners postpone this sorting until the withdrawals decide the question. I understand the delay.

Resist the urge to open with an offer before the sorting is done. The agreement called itself a purchase. What left the account each day behaved as a loan. A business that knows the exact amount it owes, and whom the documents obligate, negotiates against a schedule rather than a shadow.